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Tuesday, May 02, 2006

The Economics of Reality

(Keywords: politics, economics, tax breaks, reality smacks the right upside their fool heads repeatedly )

John Kenneth Galbraith died this weekend. He was one of the minds behind FDR's New Deal, as well as a leading advocate of the economics of realism. In other words, he was a person who studied the way money works in the real world and advocated policies based on those studies. In short, he was not a utopian.

I've waited to write about this because I'm not an economist. When it comes to ecomonics, I'm a dope. So here's a crash course in progressive economics for dopes like me.

We live in a world governed by the idea that wealth is created by those on the top of the economic ladder and flows downward - this is called supply side economics or, in Reagan's words 'trickle down'. The idea is that people on the top of the economic ladder create jobs, so if they do better, everyone does.

This isn't true. Wealth does not move from the top down, but from the bottom up. Economics aren't a natural force - money is a human creation. So classes based on wealth are also a human creation. No one is born worthy of wealth, even though some are born wealthy. These are the economics of the real world.

Wealth moves from the bottom up. One group produces, the other consumes. Production is passive, economically, consumption is active. If you want money to move, you create policies that get money to the people who need it most. Bill Gates has never looked at his tax return and said, "Hey, honey! We can finally afford that new washing machine!" Having money is no incentive to spend; needing money is. People who need money will spend money for the same reason that people who need food will eat food.

Our current situation is contrary to reality. We're told that the economy is robust, but not everyone is sharing in the rewards. The average hourly worker's wages aren't keeping up with inflation. The wealth is pooling at the top and it's not coming down. If you have a problem with this reality, look at departing Exxon chief Lee Raymond's $400 million retirement package, then take a look in your own wallet after you fill up your tank.

All tax cuts should be weighted to the bottom, since it's impossible to argue that people who need money won't spend it. The right argues, "A rising tide raises all boats". A better analogy is a tree does not grow from the leaves down.

Galbraith's death reduces the voices of sanity and the advocates for reality by one. We can more than make up the difference.



proletariat said...

Nice post.

You said one group 'produces' and one group 'consumes' wealth. It seems to me that is a stretch. One group certainly accumulates wealth, but it seems to me that the production is done by the workers themselves.

Wisco said...

You're right. I should've made a distinction between 'production' and 'means of production'. But, as I said in my opener, I'm a dope.

Thanks for the positive feedback.

Anonymous said...

You are no dope. Your post was fairly complete. You gave the reader historical context and the current economic situation in a concise verbage. Since the coastal populations have been labeled as outside of main American values, it is necessary for the voice of the heartland to be heard. I thank you for your blog. Paul
ps - I will sign up fortwith.